THE CRYSTAL BALL ON MORTGAGE RATES

predicting the future of mortgage rates

Predicting the Future of Mortgage Rates

If we had a crystal ball with a reliability factor which could be trusted, we’d happily share the future of mortgage rates in the coming year. We don’t have that kind of glass magical orb, so here’s the lowdown of possibilities.

Mortgage rates waft up and down for a variety of factors, including politics, technology, interest rates, consumer confidence, government policy, along with regulation and deregulation in industries, corporate performances and the weather. Yes, that proverbial weather, yet in this case not so much “weather” or not it’s sunny or rainy, but natural disasters, long-term droughts, major floods and devastating weather events can impact agriculture, health and economics around the globe.

Pinpointing Accurate Predictions

So, it’s a complicated prediction, but it’s not likely to see the double digit mortgage rates which defined 1979 to 1990. The highest ever topped 16% in 1981 and 1982. The average since 1971 is 7.76%.

To review one point in proving predictions inaccurate, one only has to look back a few years when several knowledgeable sources figured mortgage rates would top 5.5% in 2019. In fact, they dropped below 4%.

It is tricky to know precisely how much impact the covid pandemic played on mortgage rates, but home buying stunningly soared as they dipped to the lowest 30-year rates ever known, falling below 3%. Of course, the home buying binge is definitely connected to such a low mortgage interest rate. For anyone putting off buying a house or planning to buy one, the timing was superb to act decisively.

Inflation and Mortgage Rates

Inflation is among the factors which caused mortgage rates to rise a whole 2% in the middle of 2022. However, the outlook is not all that gloomy.

A July 27, 2022, article on Morningstar.com was titled “Fed Steps UP Inflation Fight Again, but We See Rates Coming Down in 2023.” The author, Preston Caldwell, is the Chief U.S. Economist at Morningstar Research and writes this:

We expect the Fed to pivot to easing monetary policy in 2023 as inflation falls back to the central bank’s 2% target and the need to shore up economic growth becomes paramount. We project the federal-funds rate to fall from a peak 3% at the start of 2023 to 1.5% by 2024. Accordingly, longer-term yields – including mortgage rates – should fall as well.

Potential Mortgage Flexibility

Additionally, mortgage rates have some degrees of flexibility in each transaction. Personal credit scores, down payment amounts, type and duration of loan and other factors determine a lending institution’s final offer of the mortgage rate. Excellent credit scores, a great job, steady employment and a high down payment can lower a mortgage rate.

The most popular mortgage duration remains the 30-year version, yet the savings are ginormous with a 15-year mortgage. Using 5.5% as an interest rate and $400,000 for the purchase price, here’s the breakdown in what a homeowner pays for the property:

 

There’s close to a quarter of a million dollars’ difference between those two scenarios. It might make sense to hold off until you can take on the 15-year mortgage, especially if you plan to stay put in the house of your choosing in Austin for decades. In fact, going with a 15-year mortgage might be more attractive than scrutinizing the interest rate by the tenth of a percent.

Some lenders are willing to make loans for any number of years between eight and 30. Test your toes with a 20-year loan if your down payment, employment and life goals make that the most appealing loan structure. And there are other mortgage products, including the adjustable rate mortgages and government insured loans.

Fannie Mae Projections

The latest projection for mortgage rates from the Federal National Mortgage Association, affectionately known as Fannie Mae, is currently 4.5%, down from its previous prediction of 5.1%. As home buying comes down, back into a more normal range for the industry, one can only hope mortgage rates stay stable or fall a tad. Any large reduction will again spur new building and buying. Any high spike will slow things down and place buyers in the driver’s seat once again.

Without a crystal ball to accurately forecast mortgage rates in the coming year, we believe the home industry will stay strong anyway in the Austin region. The appeal of living, retiring and working in central Texas is for certain. The housing options are vast. The skies are beautiful. The music is spectacular. Jobs are plentiful. People are friendly. Food is heavenly. The landscape is stunning, and the sun shines 229 days of the year!

Contact Us

Whether you’re selling or buying a home, it’s crucial to talk to a real estate agent in your local market. Our experienced team at Habitat Hunters is always on top of market trends, and any possible issues that may occur during the home buying process.